Conveying Value, Part 2

When LEDs first emerged for general lighting applications 5-10 years ago, their price points drove many end users and channel members to seek out cheaper alternatives from offshore and/or lesser-known manufacturers.  But are distributors still contending with that dynamic?  In Part 2 of lightED’s two-part coverage, three experts – Rhandi Kuchenmeister, purchaser at K/E Electric Supply Corp. in Mount Clemens, MI (www.keelectricsupplycorp.com), Mac Doyle, Ladson and Charleston, SC-based area branch manager at Border States Electric (www.borderstates.com), and Ryan Micheletto, district operations manager at Crescent Electric Supply in Joliet, IL (www.cesco.com) – discuss their experience with current and future price points in the LED market and how they convey the value of higher-quality products by trusted manufacturers to their customers.

lightED:  Do you find that cheaper offshore and online alternatives are indeed putting price pressure on the LED lighting marketplace?

Kuchenmeister:  Pricing will always be an issue. Not too often do you hear a customer say “I don’t care what it costs, I need it!” There will always be an import or economy model or just another manufacturer willing to take an order for $1 less. Initially, the imports could only come to market based on price, as there was no history of quality to go by, or long-standing relationship to build from. Just like decades ago when the home PC was just a dream, technology and manufacturing processes made them more affordable for the masses. When LEDs first came out, very few people bought them due to their higher initial cost, which made the ROI longer. Larger manufacturers usually weren’t first to market because they followed a process of engineering and testing, but when they got it right the prices started to plummet. As a purchasing and inventory manager, I would complain about how often our lamp manufacturer would change generations of lamps, sometimes 3-4 times a year, which makes it hard to control. I knew this was good for the market, but it still made my job harder.

Doyle:  Cheaper alternatives are absolutely putting price pressure on the lighting marketplace. Anyone with access to the internet has the ability to go online and find a less-expensive version of any product they’re looking to buy. The problem with this is that the individual typically doesn’t have the background knowledge to understand what they’re getting into. We combat this issue on a daily basis by simply having an open dialogue with our customers.

Micheletto:  As with any newer product category, pricing with past LED lighting was a major concern because the difference in prices (between well-known and off brands) varied so much. What’s happening now is that the major players and vendors in the lighting market have had time, capital, and enough volume to start bringing their quality fixtures to a much more competitive level. It seems like almost monthly we’re seeing new, lower pricing from our major vendors across entire categories of LED products. What used to be a $70-$150 difference per fixture is now more like $15-50. Because of this, I believe we’ll start seeing the lower-quality, less expensive alternatives going away, either through loss of business or acquisition by a larger entity. At the very least, their day-to-day impact on distribution is definitely going to dwindle. Like any other industry, what seems like hundreds of companies competing at the start has a way of working its way down to a handful of major players that control most of the market. Plus, lighting is going so much further now than just providing simple light for a space – it’s really developing into a “show me” category with products that can create demand with the ‘wow’ factor of a demo or training, especially for new installations; it’s providing solutions that customers didn’t even know were available or didn’t know they wanted/needed and lower-cost, lower-quality products just can’t provide those solutions. From simple integrated controls and daylight harvesting to full-on data collection and automation system integration, the future of lighting itself is going well beyond its traditional role. Low-cost, low-quality solutions just won’t be able to keep up with the advances in the industry and what will be expected of a lighting solution in the near future.

lightED:  Where do you see LED prices going in the future?

Kuchenmeister:  I think that now with fifth, sixth, and seventh-generation lamps and fixtures coming out, pricing is where it will stay for a while and the difference between the name brands and offshore models is usually quite small. You can always buy off-brand Oreos and save $.20, just like you can buy offshore LED lamps now, but the cost of failure with installed products is far more than the cost of failure on no-name Oreos.

Micheletto:  It seems that there’s already been a major decrease in pricing over the past couple of years. At some point, it’s absolutely going to have to level off. What we’re seeing now is that current levels are staying pretty even with new product introductions or newer generations of fixtures, but the features of the products themselves are improved. For example, a new generation of fixture has a very good shot of releasing at the exact same price point as its predecessor, but with higher efficacy, more lumen packages, newer control options, and possibly even field-tunable color temperature or field adjustable light output. Essentially, the pricing will even out, but customers are getting much more for their money.

lightED:  How do you convey the value of higher-priced/higher-quality products to customers?  E.g., how do you get customers to understand that cheap prices from an offshore manufacturer won’t benefit them in the long run, or that online prices aren’t “real” because they don’t come with a guarantee or value-added services?

Kuchenmeister:  Value engineering has been around for a while. Customers know that there’s a difference between “economy models and name brands, just like we know the quality difference between a KIA and a Ferrari. The deciding factor now is whether that cost savings is worth the potential risk. We try to stock only the name brands we can trust and stand behind and I think our customers appreciate knowing that whatever product they walk out our door with and install on their job site will work the first time. It’s about building trust and respect with our customers. If they see you swapping brands and labels every other month, how will they learn to trust what you have on the shelf? Was the last product not good enough? Is the new product really that much better? Or are you just pinching pennies looking at the bottom line? Stand behind what you do, because there’s no return policy for broken promises.

Doyle:  Again, I think it’s all about continuously having an open conversation with your customers. If customers bring us online pricing in hopes that we’ll match it, we’ll break down the cost structure for them – online item “X” is made by a company with no credibility, has a warranty for longer than they’ve been in existence, and offers lower-quality light output, while trusted manufacturer-made item “Y” has a comparable warranty, has been in business for over 20 years, and has a local representative who can assist with installation and troubleshooting if any issues arise. Unfortunately, problems will always occur, so we push our partnered customers to support manufacturers who, when needed, will be there to support them.

Micheletto:  Ultimately, it’s the improved performance of higher-quality lighting options that help us fight against low-cost alternatives. While it’s easy to sit down and talk about what competitive products CAN’T do, we like to take the approach of showing our customers what our product selections CAN do. For example, we recently quoted the lighting for a new car dealership parking lot against a bill of material from a vendor we’d never come across before. What we immediately noticed was the high number of fixtures the competition was quoting for a smaller lot, and upon further research found that these fixtures were not only well below what we considered to be current acceptable efficacy standards, but were only available in one distribution type. Essentially, they were throwing a ton of light at the issue and hoping they hit what they wanted. Our approach was simple — we told the customer that we were going to provide a solution that used fewer fixtures with more advanced features that allowed us to better control the light, and we were going to do it for the same cost or less, labor included, than the competition. Essentially, we were going to put the light where we needed it to go with little to no waste. Not only that, but we were going to provide an advanced lighting controls system that gave the customer full control of their lighting system, even remotely, which not only extended the life of the fixtures but cut the customer’s power consumption as well. Plus, with fewer fixtures and lower pole heights, the money saved on excess material and labor made up any difference that may have existed between the products. The ten-year cost of ownership analysis between the two options was eye-opening; in the end, we were able to win the business with 20 fewer fixtures and nearly 3000 watts saved compared to the competitive quote, and we did it with better-quality fixtures that offered the customer more advanced features. Overall, even if the customer isn’t looking for an advanced solution, taking the time to show them the features and benefits of our products is more than they’ll typically ever get from shopping on price alone, and that service in and of itself is usually enough to set us apart. Service and support is such a major differentiator for these products. And at the end of the day, we can always show them a simple cost of ownership analysis that will confirm just how much saving some money up front will cost them in the long run; even the stingiest of price shoppers can appreciate a product that they can expect to last nearly a decade or more.